Taxation is based on the source principle, in which only income earned at source, in this case in Singapore, or those derived from overseas but received in Singapore, are taxable. Non-residents receiving income derived from outside Singapore are therefore not subject to tax. This system, however, has the potential in allowing for tax avoidance practises by individuals who derive income from abroad, gain tax exemptions via their non-resident status there, and utilising this income outside Singapore.
From YA2003, Singapore residents may also opt for the Not Ordinarily Resident (NOR) Scheme, tailored for individuals who travel out of Singapore frequently. These individuals must, however, fulfill two criteria, namely being qualified as a resident during the Year of Assessment, and a non-resident for three consecutive Years of Assessment immediately prior to the Year of Assessment in which the application is being filed. Successful applicants are entitled to NOR status for five years commencing from the year of eligibility based on the above criteria, which will then allow the taxpayer to only pay income tax proportionate to the number of days spent in Singapore, and only on the portion earned directly in Singapore. This tax concession is only applicable if the taxpayer is outside Singapore for at least 90 days for business purposes, and taxes payable on employment income in Singapore exceeds 10% of that total income. A NOR taxpayer also enjoys tax exemption on income earned prior to arrival in Singapore. Further more, a non-citizen or non-PR taxpayer will not be taxed for employer contributions to any non-mandatory overseas contribution scheme, such as a pension fund, although the exemption amount is subject to a cap.
Individuals employed by non-resident employers will be taxed for income derived from employment in Singapore, even if the income itself is not paid locally. These individuals may, however apply for area representative status, if all criteria are met, upon which they may be taxed on the remuneration relative to the number of days spent in Singapore. Should the applicant be a Singapore resident, he will be taxed using either system, whichever is higher.
|Chargeable annual income bracket||Rate|
|For the first S$20,000||0%|
|S$20,000 - S$30,000||3.5%|
|S$30,000 - S$40,000||5.5%|
|S$40,000 - S$80,000||8.5%|
|S$80,000 - S$160,000||14%|
|S$160,000 - S$320,000||17%|
|S$320,000 and above||20%|
Should an individual have an annual chargeable income of S$400,000, for example, his gross tax payable will be S$[(20,000 X 0%) + (10,000 X 3.5%) + (10,000 X 5.5%) + (40,000 X 8.5%) + (80,000 X 14%) + (160,000 X 17%) + (80,000 X 20%)] = S$58,700 (Average tax rate = 14.7%).
The maximum tax payable went down from 22% in YA2005 to 21% in YA2006, and 20% in YA2007, with the rest of the scale rate adjusted accordingly. This is in line with the Singapore Government's gradual reduction of nominal individual tax rates since the 1980s, a trend similarly observed in other countries. Tax rates ranged from 3.5-33% in 1987, and dropped to a range of 2-28% in 1997. In 2002, it ranged from 0-26%, before dropping further since 2003.
|Year of assessment||Rate|
|1997 to 2000||26%|
Only expenses incurred in the course of employment, are not reimbursable by the employer, and are not of capital in nature may be considered for tax deductions. This may include entertainment expenses, traveling expenses (only for vehicles registered for business services, and not including travel to and from work), and subscriptions paid to professional bodies or societies.
Taxpayers enjoy double tax deductions for personal and company donations, but with specific restrictions. Only donations made to a pre-approved list of charities, institutions, or the government for community benefit qualify. Donations may come in the form of cash, shares, computer hardware or software, artefacts of an artistic or heritage nature, and plots of land or buildings.
Donations made prior to 1 January 2005 which involves naming rights will be allowed single tax deduction only. Donations made in which the donar gains the rights to self-advertise are not tax deductible, and will be treated as advertising or marketing expenses. Similarly, donations which are bound for foreign charitable purposes do not qualify for any tax deduction, even if made via approved charities or institutions.
Resident taxpayers also enjoy various forms of tax reliefs which are claimable as tax deductions. They come in various forms, including